2009 not so bad for credit unions

The aggregate profit for credit unions fell by 28 per cent to $224 million in the year to June 2009, not quite as steep a fall as preliminary data compiled by the industry indicated.

Return on assets for the financial year fell to 0.5 per cent from 0.8 per cent in 2008, while the return on equity fell to 5.7 per cent from 8.5 per cent a year earlier.

The number of credit unions fell to 117 as of June 2009, down by 16 from a year earlier. The number of credit unions is down by one third over a five-year period as smaller entities fold into larger organisations.

APRA published quarterly data on sector profit yesterday.

The need for credit unions to increase their level of liquidity, mainly by paying high rates for term deposits, is the main driver of the lower sector profit.

Credit unions increased deposits by 14 per cent over the year to $40.4 billion, a faster rate of growth than that reported by the banking sector (at 10 per cent).

Term deposits increased 20 per cent over the year while the level of at-call deposits fell slightly over the year. This lowered the ratio of at-call deposits to term deposits across the sector to around 1:1. This ratio was closer to 1.2:1 in late 2007.

The ratio change reflects APRA's directives, as much as strategy at individual credit unions, to increase funding from term deposits. APRA was especially prescriptive on this point in late 2008 and early 2009 but has eased off more recently, leaving credit unions to work in a more measured way on meeting the longer term requirements of APRA for more rigorous plans around managing liquidity.

The flip side of the focus on liquidity is that the rate of growth in assets slowed to six per cent over the year.    

A decline in the level of personal loans and "other" loans, such as revolving credit, may reflect the use of stimulus payments to reduce consumer debt.